Two stories in the financial news caught my attention today. The first is that the DMO has managed to sell gilts with a negative yield. This has prompted much anguished debate about whether negative interest rates might be on the way.

The other apparently unrelated story is that Crispin Odey has been musing about whether governments might introduce (or re-introduce in the case of the US) controls on owning physical gold.

Both of these make me think about a concept widely used in political science called the Overton window. Put simply it describes how over time policy agendas subtly but noticeably move left or right as the ‘public mood’ changes and evolves over time. The New York Times has an excellent primer on the Overton window here –

The Covid 19 crisis has already prompted much debate how the policy agenda is shifting leftwards – Andrew Marr has a long piece on the concept in this weeks New Statesman. I have some sympathy for this view but think it might be a little presumptuous to suggest that the Tories will suddenly turn into big spending social democrats. I would hazard a guess that in a few years’ time wealth creation will be firmly back on the agenda.

But in the mean time I do think we will see a range of policy changes that look to address the emerging economic crisis which is I think is absolutely epic in scale – despite what the stockmarkets are telling us.

What might change? Here’s my % probabilities attached to key policy moves which might impact investors…

  • 80%. Dual interest rates. Eric Lonergan has been pushing this idea in his Philosophy of Money blog and in various interviews. Put simply you might increase savings rates but push key lending rates into the negative space. In Europe I think this is increasingly a racing certainty
  • 75% No Deal Brexit. Whatever one may think about this eventuality, I think we all have to accept that this is fast turning into self-fulfilling prophecy as both sides dig in.
  • 75% Abolition of cash and digital accounts with the BoE. Cash is so last year and a public health challenge. So expect it to be fazed out in the next few years. It might be replaced with a digital e money account for everyone with the Bank of England, allowing helicopter money to be flushed into the economy at the right time. Some are also talking about perpetual loans as a substitute. This idea’s time has come in my view.
  • 65%. One of increased income tax rates. I sense that the idea of imposing austerity within the next 2 to 4 years is a complete non starter. Debt levels can and should increase but eventually the worriers and cynics in the Treasury will demand a ‘sacrifice’ i.e something that shows HMG will find a way of paying for this largesse. Step forward a special one off limited time duration (2 year) special income tax surcharge of 5p on all higher rate taxpayers.
  • 55% Bonfire of the allowances. Too many of the allowances around IHT and pensions are simply unjustifiable in the new policy landscape. Say goodbye to higher rate pensions relief and the AIM IHT structure.
  • 50% New wealth taxes. Again this might be time limited. It might take the shape of a reshaping of IHT but the central policy agenda will be tax the very wealthy (over £1 million in liquid assets). It might even take the form of a pensions surcharge of say 10% (one off) for those with savings pots of over £1 million.
  • 30% Negative interest rates. I see the intellectual arguments but I remain to be convinced that the US Fed and the BoE will cross this rubicon. That said a severe new crisis might change their minds.
  • 15% UBI. Everyone and their Auntie on the centre and the left is now jumping on board the universal basic income argument. Again there is some intellectual justification for it (Not that I am convinced) but the sheer practicalities work against the concept.
  • 5% Confiscation of physical gold. I see Odey’s argument and I have myself worried about rising inflation expectations. But it’s an enormous leap to say that we’ll repeat Roosevelts policy move to ban private possession of gold. That said it’s a fantastic way of scaring people and pushing up the gold price.